Regional Updates

1. Core Legal Principle

In simple terms, what the parties agree is what governs the relationship. However, this sits alongside an equally important concept under Article 246, which requires that contracts be performed in good faith and not strictly limited to what is written, but also extended to what is reasonably expected in practice, based on the nature of the transaction and commercial custom.

2. Application in Business Context (Late Payments)

Now, in a business context, this becomes very relevant when we talk about late payments. If a party delays payment, the question is not only:

“what does the contract say,” but also

“has the party acted in good faith, and have they been given a fair opportunity to remedy the situation?”

3. Early Warning Mechanisms

This is where early warning mechanisms—whether contractual notices or informal commercial communication—play a key role. They are not just procedural steps; they are part of risk management and relationship preservation, allowing parties to address issues before they escalate.

4. Legal Escalation Framework

Legally, under Article 272, if a party fails to perform its obligations, the other party—after giving notice—has the right to either:

• demand performance, or
• terminate the contract, with the possibility of claiming compensation.

This reflects a structured escalation path:

• First notice
• Opportunity to cure
• Only then enforcement

5. Practical Commercial Approach

From a practical perspective, businesses typically approach this in layers:

• Initially, a commercial approach—follow-ups, reminders, and internal escalation
• If that fails, a more formal step such as issuing a legal notice, which often acts as a turning point in the matter

6. Legal Enforcement Options

In some cases, particularly where there is clear evidence of debt, parties may consider faster legal tools, such as:

• summary procedures
• precautionary measures like freezing receivables or assets

However, these are generally dependent on having strong, undisputed documentation, and they are not always suitable where the dispute requires deeper judicial analysis.

7. Key Takeaway

So, the key takeaway from both a legal and commercial perspective is this:

• contracts should be drafted with clear payment terms and notice mechanisms
• when issues arise, parties should act early, document their position, and escalate in a structured manner

In many cases, a well-timed and properly framed notice can resolve the issue efficiently, without the need to go through full litigation or arbitration.

Author: Ibrahim Kamal, Legal Counsel. If you have any questions, he can be contacted at [email protected].